Lecture 6 notes Oct 4

Lecture 6 notes Oct 4 - M onday, October 04, 2010 Taxation...

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Monday, October 04, 2010 Taxation of Investment Returns o Marginal Tax Rate Definition o Determining an Investor’s Marginal Tax Rate o Types of Investment Returns Taxation of Interest and Example Taxation of Dividends and Example Taxation of Capital Gains and Example Effective Tax Rate Calculations Before and After Tax Rates of Return Interest vs. Dividends vs. Capital Gains: Tax Summary o Which Offers the Best After Tax Returns Alternative Types of Investments o Bonds and Debentures (Page 227-318 LM) o Characteristics of ALL Bonds Face of Value Length of Life/Date of Final Maturity Coupon Rate o The Bond Indenture o The Bond Trustee o The Order of Liquidation Types of Bonds Page 1
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Monday, October 04, 2010 o Secured Bonds o Unsecured Bonds Reading Bond Quotations in the Financial Press Calculating Rough Bond Yields. Examples Bond Price Movements o Vary Inversely With Interest Rates Why? Example Problems to Demonstrate Features Possessed By Some Bonds o The Call (Redemption) Feature o The Conversion Feature o The Extendible/Retractable Feature Page 2
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Monday, October 04, 2010 Characteristics of ALL Bonds Face Value o Most bonds are initially sold at a face value (par value) of $1,000 per bond Length of Life/Date of Final Maturity o Most bonds have a relatively long life from the time they are initially sold (issued) until the time that they mature (date of final maturity) o Referred to as the bond’s “run to maturity” or “life expectancy” and is normally 20 years o However, some bonds may have a longer run to maturity (for example 30
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Lecture 6 notes Oct 4 - M onday, October 04, 2010 Taxation...

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